The banking industry is entering a global repricing of the funding franchise as customers increasingly compare cash returns across traditional and alternative financial products. According to latest analysis, money-market funds have demonstrated that cash will move for yield, with U.S. money-market-fund assets reaching $7.9 trillion by January 2026, up from $7.2 trillion a year earlier. The Federal Reserve's July 2026 Monetary Policy Report described money-market assets as remaining near record levels because their yields continued to be more attractive than bank deposit rates. This shift represents a fundamental change from the traditional assumption that most customers would leave most of their cash where it already was. In the United States, domestic deposits at FDIC-insured institutions rose 2.1% in the first quarter of 2026, the seventh consecutive quarterly increase, yet industry net interest margin fell eight basis points to 3.31% as earning-asset yields declined faster than funding costs.
According to reports from Business Standard, the narrative of households abandoning bank deposits for mutual funds is fundamentally flawed. Household financial assets grew from ₹24.07 trillion in FY20 to ₹42.90 trillion in FY26, representing a 78% increase. The analysis reveals that bank deposits ceded only 1.04 percentage points of household financial assets, making it the second-smallest loss category after direct equity at 2.97 percentage points. The deposit share of household financial assets moved from 36.7% to 35.7% over seven years, with no discernible directional trend, while FY26 deposit flows reached an all-time record of ₹15.32 trillion, 22% higher than the previous year. The money never truly left the banking system - it was repriced internally from savings accounts to term deposits. As per Business Standard, FY21 was not a trough in Indian household saving. It was the peak. Net financial savings reached ₹22.81 trillion as households sat on cash and repaid debt through the pandemic. The 'fifty-year low' headlines that followed in FY23, when the figure fell to ₹13.90 trillion, were measuring the descent from that spike compounded by a borrowing surge that took household liabilities from ₹9 trillion to ₹16 trillion in 12 months.
As reported by Business Standard, System Casa ratio peaked at 44.79% in March 2022 and has declined every year since to 38.40% in March 2026, falling 3.26 percentage points below pre-pandemic levels. Household CASA ratio similarly declined from 50.41% to 45.25% over the same period. The analysis shows that households account for 74% of the 6.39 percentage point decline in CASA ratio, with the mix effect of households moving their own money from savings to term deposits outweighing their loss of deposit share by approximately two to one. Savings accounts fell 5.84 percentage points of the system mix while current accounts declined only 0.54 percentage points, indicating the damage is primarily concentrated in savings accounts rather than current accounts. The analysis notes that households had not stopped saving. They had started borrowing, with household liabilities increasing significantly during this period.
According to Business Standard, banks cut savings rates from 2.70-3.00% to a flat 2.50% while term deposit rates increased, creating a 400-basis-point gap that households naturally moved through. The analysis demonstrates that 25 basis points off term deposit rates is worth 0.154 percentage points of blended cost, while 25 basis points onto the entire savings book costs 0.072 percentage points. With the term book being 2.1 times the size of the savings book and carrying 2.1 times the leverage, the gap is better closed from the top through term deposit rate convergence toward the policy rate of 5.25% per annum. The industry's pricing decisions, not competitive pressure from mutual funds, drove the deposit repricing from savings accounts to term deposits. The analysis notes that the 400-basis-point gap opened as banks cut the savings rate from a range of 2.70-3.00 per cent to a flat 2.50 per cent, while term deposit rates went up, creating conditions for natural migration. Latest global analysis confirms this trend, showing that deposit competition can persist even when the system appears liquid and profitable, with banks needing to remain competitive enough to prevent valuable customers from moving excess cash elsewhere while being disciplined enough not to overpay customers who would have stayed.
As reported by Business Standard, the analysis suggests two critical steps for the banking industry to address deposit challenges. The first involves launching a category campaign similar to AMFI's 2017 initiative, with a message of Pehle Bachat, Phir Nivesh (save first, then invest) that would be deliberately non-confrontational and concede that investing is appropriate. The second requires implementing tiered savings rates above ₹1 lakh, which would reduce break-even requirements from 17.25 percentage points to 6.9 percentage points with 40% of the savings book above the threshold. The analysis emphasizes that deposit rates are purchase prices of funds, and any coordinated approach to setting them constitutes a cartel, however collegial it may be arrived at. The banking industry has simply never said this out loud, being otherwise engaged in advertising 7.25% for 444 days. Latest global analysis suggests that the winners are unlikely to be the institutions that offer one universal rate, but rather those that understand customer behaviour at a granular level and can price liquidity without confusing loyalty with inertia. The analysis notes that the most valuable deposit is not necessarily the one with the highest balance, with current accounts linked to payroll, payments, collections and lending being more stable and economically valuable than large pools of uninsured corporate cash.
